The restaurant industry, which has an annual economic impact in excess of $1.7 trillion here in the US, has been reeling under the effects of the recent Great Recession, and has been forced to adapt to the ever changing economic landscape. The shifts in consumer preferences for cheaper meals and cost ineffectiveness of running a full service restaurant in these uncertain times has taken its toll.?
According to the DC based National Restaurant Association (NRA)'s annual forecast for 2011 (released in February 2011), the outlook for this year was expected to be positive for the first time after three consecutive years of negative real sales growth. The 960,000 restaurants in the US employ 10% of the US workforce and sales represent 4% of our total GDP.
Hudson Riehle, senior vice president of the Research and Knowledge Group for the NRA had said at the time that, "The U.S. restaurant industry is an economic juggernaut whose annual sales are larger than 90 percent of the world?s economies ? if it were a country, it would rank as the 18th largest economy in the world. While pockets of challenges remain, we are looking forward to a brighter future in 2011".?
However this overall optimism for recovery has been dampened as the year has unfolded. Recent figures released in July showed softer sales and lower customer traffic; with the Restaurant Performance Index slipping to its lowest level in 11 months.
Earlier this week, the NRA reported: "In 2010, real median household income declined to its lowest level since 1996. Even more critical for the restaurant industry, the number of households with incomes above $75,000 ? prime restaurant customers ? declined by nearly two million between 2007 and 2010. While the overall downward trend is a cause for concern, the sharp decline in the number of higher-income households poses additional challenges for the restaurant industry.
The potential implications for the restaurant industry are significant, as higher-income households represent the majority of spending in the industry. According to analysis of data from the Bureau of Labor Statistics, households with incomes of $100,000 or higher are responsible for 37 percent of the total spending on food away from home, while households with incomes between $70,000 and $99,999 account for 19 percent of industry spending."
The first causalties of the Great Recession were the high end restaurants that depended on their equally high end clientele. The recession brought along a rude wake up call and an attitude shift. In his most recent bestseller, 'Medium Raw', chef and author Anthony Bourdain writes about the changes forced upon the high end restaurants with the 2008 economic crash. Here is an excerpt: "Suddenly, overnight, that whole economy was in doubt. There was panic. In the blink of an eye, hidebound attitudes and behaviors, which had only yesterday been so deeply ingrained as to be instinctive, completely reversed overnight.?
Suddenly, everywhere you went, people were uncharacteristically...polite. Velvet ropes disappeared. Hostesses who only last week would look right through you with blank, model stares now became as welcoming as your beloved granny: almost painfully accommodating and eager to please. Phones that used to ring forever were picked up on the first toll. A civility bordering on desperation replaced studiously affected contempt. Tables became available where once there had been no possibility of there ever being a table. Even walk-ins were treated with courtesy in the hope that any accrued goodwill might pay off later.
Chefs who hadn't been near their dining room, much less their kitchens in some time suddenly returned - and even made a point of cooking. Half-price specials, half portions, ? la carte options appeared where they'd once been unthinkable. Prices dropped, specials changed to less pricey, less intimidating creations. The words "two for one", "free bottle of wine", "half-price", and even "early bird dinner" began appearing on menus, signs and Web sites."
At the other end of the food spectrum are the low cost and fast food outlets, whose recent resurgance is a direct result of the uncertain economic times. The fact that August 2011 marked the 100th consecutive month of global comparable sales growth for McDonalds says much about where people are eating these days. McDonald's biggest sale growth came from the US and Europe (especially the UK and Russia).?
Shifting times force innovation when survival is at stake. The surging popularity of food trucks ?in this country is a testament to that theory. The food trucks - mobile restaurants - can travel to different destinations and offer relatively low cost, fast food to customers. Most Asian countries have had street vendors for decades but here in the US this is a relatively new and fast growing trend. Some of the food trucks have such huge fan following that they tweet and post on Facebook what part of the city they are going to be that day, just so that their customers can follow them there.
According to the data released by the NRA earlier this month: "Food trucks are one of the hottest trends in the restaurant industry right now, and consumers are showing increasing interest in mobile food service, new research by the National Restaurant Association confirms.?The new research, a consumer survey conducted last month, found that nearly six out of ten (59 percent) American adults say they would be likely to visit a food truck if their favorite restaurant offered one, up from 47 percent just one year ago."
The range of food products offered by the food trucks is varied and so is the price. Due to its low overhead cost, some of the well established chefs are also branching out in the food truck business, offering gourmet food on the street. This type of food will typically cost a bit more, but still less compared with eating at a full service, brick and mortar restaurant run by the same chef.?The mobile food industry is expected to continue its meteoric rise not just in the US but worldwide, in near future. According to a recently released research by The Global Industry Analysts, Inc. the global mobile food industry market is expected to reach $2.6 billion by 2017.
Restaurateurs who have been slower on their feet, i.e. have not adapted fast enough and hard enough to the changing times, have lost out as evidenced by multiple restaurant closures in the country. Mom and Pop outlets have typically suffered serious losses. The NDP Group - a provider of retail and consumer information - released its latest annual report on American food service industry last month in which it said that over the past one year alone the number of restaurants in the US declined by 9,450. Greg Starzynski, director, product development-food service said that, "The decline in independent units is the steepest we've seen since NPD began conducting the Spring ReCount census in 2001. A volatile economy, more frugal consumers, and a lack of financial backing have made it a difficult business environment for independent restaurants."
The new economic realities are forcing changes in the food service industry not just in the US but pretty much everywhere, as consumers are less willing to spend money and demand more in return for their money. Just as the American restaurant industry has had to adapt and change, so have the British pubs across the pond, which are shuttering down at the rate of two per day.?
Although the challenges facing the British pubs are multi-factorial, the economic uncertainties of recent times are definitely a major factor.?To, counter that, one of the emerging trends in the British pubs is their transformation into caf?s by sunrise and a watering hole by sundown. An article in The Economist (published last September) explains: "TAKE a morning stroll past the Jack Phillips in Godalming, a prosperous commuter town in Surrey, and you might well not realise that it is, in fact, a pub.
Traditionally, pubs do not open before about 11am, and the first customers through the doors are often the local alcoholics. But the Jack Phillips has been open since 7am, serving cheap coffee and hot breakfasts to a clientele comprising young parents with pushchairs, pensioners and a sprinkling of besuited office types grabbing a quick coffee (and checking their e-mail using the wireless internet connection) before work.
The multifaceted hostelry is run by J D Wetherspoon, a biggish pub firm that owns 775 low-cost alehouses. Since its pubs began opening early in the morning last year, sales of breakfasts and coffee have risen by about 40%. J D Wetherspoon reckons that it sells 400,000 breakfasts a week, second only to McDonalds, and 600,000 cups of coffee, behind only Starbucks and Costa Coffee. It now in effect runs two businesses from each of its premises: a family-friendly caf? by day, and a budget boozer by night. Its method suggests that, rather than being ousted by coffee shops, the non-alcoholic rivals that have proliferated on British high streets since the 1990s, pubs can incorporate them. This sort of innovation is a response to harsh times in the pub industry."
Innovation, creativity, thinking outside the box, the ability and the willingness to adapt quickly is the key to survival for food service businesses in these uncertain times. Every dark cloud is supposed to have the proverbial silver lining.?Not all changes are bad and some - as in the attitude shift at the high end restaurants - is long overdue and a welcome change. Days of taking customers for granted and ripping them off by selling them a $10 bottle of wine for $50 are hopefully over. One of the best unintended consequences of the Great Recession may be - a savvy consumer who demands a good value for money.?
~ Gauri
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